THE cost of a TV licence is to go up by £5 to £121 a year, it was announced yesterday.

The new fee for a colour licence will come into effect on April 1 next year. The cost of a black and white TV licence will go up £2 to £40.50.

The BBC will have to raise around £1.1bn through efficiency savings and increased income under a settlement agreed with the Govern-ment.

Culture Minister Tessa Jowell said, "This settlement is designed to enable the BBC to provide a strong and distinctive schedule of high-quality programmes and remain at the forefront of broadcasting technology."

The rate of increase is set according to the formula announced by the Government in 2000 after a report on the future funding of the BBC by an independent review panel.

Ms Jowell has insisted the BBC would not be punished for its reporting of the Iraq dossier row.

BBC chairman Gavyn Davies has accused the Government of putting the corporation's independence under threat.

Ms Jowell said the row over Radio 4 correspondent Andrew Gilligan's reports would have no bearing on her consideration of the BBC's charter and the licence fee.

She has said she would "consider very carefully" any recommendations from the Hutton Inquiry into the death of Government scientist David Kelly when making a decision later this year on the BBC's 2006 licence renewal.

Ms Jowell has also insisted the BBC's core public service output would be protected for at least 10 to 15 years.

She told a fringe meeting at Labour's party conference in September it was "a certainty" that the corporation would emerge from the renewal of its royal charter in 2006 as a strong and independent organisation.

But she made clear that all other aspects of the BBC's future were up for grabs, from the licence fee to the position of its board of governors and the range of TV and radio channels on offer.

Ms Jowell's comments indicated that she was ready to consider arguments made by the BBC's commercial rivals that it should no longer receive public funding for its entertainment, digital and online services, but should be slimmed down to a core of news, arts, information and minority programming that might otherwise find nooutlet.